Working papers results
This paper investigates time series methods for forecasting four Euro-area wide aggregate variables: real GDP, industrial production, price inflation, and the unemployment rate. We consider two empirical questions arising from this problem. First, is it better to build aggregate Euro-area wide forecasting models for these variables, or are there gains from aggregating country-specific forecasts for the component country variables? Second, are there gains from using information from additional predictors beyond simple univariate time series forecasts, and if so, how large are these gains, and how are these gains best achieved? It turns out that typically there are gains from forecasting these series at the country level, then pooling the forecasts, relative to forecasting at the aggregate level. This suggests that structural macroeconometric modeling of the Euro area is appropriately done at the country-specific level, rather than directly at the aggregate level. Moreover, our simulated out-of-sample forecast experiment provides little evidence that forecasts from multivariate models are more accurate than forecasts from univariate models. If we restrict attention to multivariate models, the forecasts obtained from a dynamic factor model appear to be somewhat more accurate than the other methods.
The rate of inflation in the US has declined from an average of 4.5% in the period 1960-79 to an average of 3.6% in 1980-98. Between those two periods, the standard deviations of inflation and the output gap have also declined. These facts can be attributed to the interaction of three possible factors: a shift in central bank preferences, a reduction in the variability of aggregate supply shocks and a more efficient conduct of monetary policy. In this paper we identify the relative roles of these factors. Our framework is based on the estimation of a small structural macro model for the US economy jointly with the first order conditions, which solve the intertemporal optimization problem faced by the Fed. Overall, our results indicate that the policy preferences of the Fed, and in particular the (implicit) inflation target, have changed drastically with the advent of the Volcker-Greespan era. In addition, we find that the variance of supply shocks has been lower and also monetary policy has been conducted more efficiently during this period.
Cross-country evidence on inflation and income inequality suggests that they are positively related. I explore the hypothesis that this correlation is the outcome of a distributional conflict underlying the determination of fiscal policy. I study a bargaining model of the political system in which inflation and inequality are positively correlated due to the relative vulnerability to inflation of low income households.
We examine whether standard monetary general equilibrium models with benevolent monetary authorities acting under discretion can generate persistent episodes of high and low inflation. Specifically, we ask whether private agents expectations of high or low inflation can lead them to take actions which then make it optimal for monetary authorities to validate these expectations. We find that this is the case for a large class of economies and that the result depends importantly on the properties of money demand.
In fact, the vast majority of the empirical evidence is based on the estimation of single-equation models and on the assumption that realized returns are a valid proxy for expected returns. A recent strand of the macroeconomic literature has analyzed monetary policy by including the central bank reaction function in small empirical macro models.
By simulating these models forward it is possible to derive the full forward path of short-term interest rates and hence to construct any long-term yields using model based forecasts. A test of the theory can then be performed by comparing observed long-term yield with those simulated and the associated 95 per cent confidence interval.
The application of this framework to the analysis of US term structure in the nineties does not
lead to the rejection of the expectations mode
Early retirement represents a persistent policy response to the appearance of a mass of redundant elderly workers, not entitled to a pension transfer. This distortionary policy reduces the incentive to accumulate human capital, and thus decreases economic growth. Why was it adopted? We suggest that alternative non-persistent policies, which do not introduce long-term distortions, but impose a larger cost on the current young generation of workers, were blocked by the political opposition of the high income workers, who did not plan to retire early, butsought to reduce the current tax burden, and of the middle income workers, who expect to retire early. What is the future of early retirement? We argue that, as the process of population aging reduces then performance of the PAYG system, the number of early retirees will diminish until, eventually, the political support in favor of this provision will disappear.
This paper studies kinship band networks as capital market institutions. It explores two of the channels through which membership in a community where individuals are genealogically linked, such as a kinship group, can affect their access to informal credit. The first is that incentives to default are lower for community members who can expect retaliation to fall on their offspring as well as on themselves (social enforcement). The second is that lenders prefer to lend to those members from whom they can expect reciprocation in the form of future loans for themselves or for their children (reciprocity). These two effects are incorporated in a theoretical framework with overlapping generations and tested using household-level data from Ghana.
When a firing litigation is taken to court, only the characteristics of the employees misconduct should be relevant for the judges decision. Using data from an Italian bank this paper shows that, instead, local labor market conditions influence the courts decision: the same misconduct episode may be considered sufficient for firing in a tight labor market but insufficient otherwise. We reach this conclusion after taking carefully into consideration the non-random selection of firing litigations for trial. Although these results refer to the specific situation considered, they raise more general issues. For macroeconomists they suggest that higher unemployment rates may increase firing costs via the effect on courts decision criteria; thus, the real extent of firing rigidities cannot be assessed without considering the role of courts. For labor law scholars, these findings are important because, following traditional principles, the law should be applied in the same way for all citizens and over the entire national territory.